List Of Offshore "Tax Havens" And Payments To Them Updated – Tax – Azerbaijan – Mondaq News Alerts

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On 11 June 2019, the President of the Republic issued Decree No724 updating the list of jurisdictions and territories withpreferential taxation (see our legal update of July 2017).

The following are the original and updated lists of suchjurisdictions (green colour bold typeface indicates removal whilered bold typeface indicates inclusion, jurisdictions in regulartypeface indicate no updates):

The updates may follow the EU list of tax havens: https://ec.europa.eu/taxation_customs/sites/taxation/files/eu_list_update_18_02_2020_en.pdf.

Earlier, under Law No 1356-VQD of 30 November 2018 effective2019, payments (i) of residents to branches and representativeoffices in any countries and (ii) to bank accounts inlow-tax jurisdictions and territories (in addition to payments topersons of such jurisdictions) have been designated as incomesourced from Azerbaijan.

The concept of a "sham transaction" has been known inAzerbaijani law for quite some time. Under the Civil Code, a shamtransaction is a transaction having the purpose of concealinganother transaction. The sham transaction is void.

For the purposes of taxation, the concept of a "shamtransaction" is relatively new. On 29 November 2019, newamendments were introduced to the Azerbaijani tax law, which becameeffective from 1 January 2020. Most amendments, essentially, servedthe purpose of strengthening the enforcement mechanisms against taxevasion. In this respect, two new definitions that were presented,namely, the sham transactions and a risky taxpayer caught specialattention.

The Tax Code defines a sham transaction as a transaction reveledin the course of a tax inspection having the purpose of hidinganother transaction and gaining profit without an actual supply ofgoods, provision of services or performance of works. In otherwords, sham transactions are the ones where the allegedtransactions never take place.

By way of example, company A concludes an agreement with companyB for the sale of office equipment to company B and company Bagrees to pay company A. Although company B pays company A theagreed upon amount, the sale of office equipment never occurs.

The introduction of the concept of "sham transactions"in the Tax Code also triggered some exceptions from the generallyaccepted rules. For instance, under the previous edition ofSub-Section 78.4 of the Tax Code, the discharge of tax obligationscould not be transferred to another person. Now, however, suchtransfer is possible in sham transactions, i.e., adischarge of a tax obligation in sham transactions can betransferred to the beneficiary (i.e., individualshareholder of company A). Only individuals can be beneficiariesfor the purposes of sham transactions. Beneficiary can be theactual recipient of income or the actual owner of a legal entityreceiving the income or an individual supervising the taxpayer.

For tax-deductibility purposes, the documents obtained during asham transactions are not taken into account by the tax authority,which relies upon the market value of goods (services, works) oralternative methods of calculating tax-deductible costs.

The value added tax paid during a sham transaction cannot beoffset.

Another concept that was introduced to the Tax Code is a"risky taxpayer". A risky taxpayer is a person conductingsham and/or risky transactions.

The Cabinet of Ministers will establish the criteria fordetermining risky taxpayers. The Ministry of Taxes, in turn, basedon those criteria, will resolve on entering the taxpayer in, orexcluding, from the list of risky taxpayers.

Information about risky taxpayers will be open to public andavailable on the website of the Ministry of Taxes.

The following rules apply to risky taxpayers, among others:

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

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List Of Offshore "Tax Havens" And Payments To Them Updated - Tax - Azerbaijan - Mondaq News Alerts